UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549


                                    FORM 10-Q

                         For the quarterly period ended

                               September 30, 2000


                           Commission File No. 1-6407




                             SOUTHERN UNION COMPANY
             (Exact name of registrant as specified in its charter)



           Delaware                                         75-0571592
(State or other jurisdiction of                          (I.R.S. Employer
  incorporation or organization)                        Identification No.)


    504 Lavaca Street, Eighth Floor                           78701
            Austin, Texas                                   (Zip Code)
(Address of principal executive offices)


       Registrant's telephone number, including area code: (512) 477-5852


           Securities Registered Pursuant to Section 12(b) of the Act:


        Title of each class            Name of each exchange in which registered
       -------------------            -----------------------------------------
Common Stock, par value $1 per share           New York Stock Exchange



Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.
Yes   |X|    No
    -------     -------

The number of shares of the registrant's Common Stock outstanding on November 3,
2000 was 50,976,219.




<PAGE>








                     SOUTHERN UNION COMPANY AND SUBSIDIARIES
                                    FORM 10-Q
                               September 30, 2000
                                      Index




PART I.  FINANCIAL INFORMATION                                         Page(s)
                                                                       -------

 Item 1.  Financial Statements

    Consolidated statements of operations - three and twelve months ended
       September 30, 2000 and 1999                                       2-3

    Consolidated balance sheet - September 30, 2000 and 1999 and
      June 30, 2000                                                      4-5

    Consolidated statement of stockholders' equity - three months ended
       September 30, 2000 and twelve months ended June 30, 2000            6

    Consolidated statements of cash flows - three and twelve months ended
       September 30, 2000 and 1999                                       7-8

    Notes to consolidated financial statements                          9-19

 Item 2.  Management's Discussion and Analysis of Financial Condition and
             Results of Operations                                     20-26

Item 3.  Quantitative and Qualitative Disclosures about Market Risk       26

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

     (See "COMMITMENTS and CONTINGENCIES" under Notes to Consolidated
        Financial Statements)                                          16-19

Item 4.  Result of Votes of Security Holders                              27

Item 6.  Exhibits and Reports on Form 8-K

        (a) Exhibit 10 -- Employment agreement between James H. Dodge and
             Southern Union Company effective upon the consummation of the
             merger with Providence Energy Corporation                   E-1

        (b) Exhibit 27 -- Financial Data Schedule                       E-12

        (c) Reports on Form 8-K -- None



<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>


                                                                          Three Months Ended September 30,
                                                                                2000            1999
                                                                            ------------    ------------
                                                                        (thousands of dollars, except shares
                                                                                and per share amounts)
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Operating revenues ......................................................   $    144,468    $     84,786
Cost of gas and other energy ............................................         84,534          39,277
                                                                            ------------    ------------
     Operating margin ...................................................         59,935          45,509
Revenue-related taxes ...................................................          5,079           3,964
                                                                            ------------    ------------
     Net operating margin ...............................................         54,856          41,545

Operating expenses:
     Operating, maintenance and general .................................         37,017          25,264
     Depreciation and amortization ......................................         15,966          10,848
     Taxes, other than on income and revenues ...........................          4,860           3,625
                                                                            ------------    ------------
          Total operating expenses ......................................         57,843          39,737
                                                                            ------------    ------------
          Net operating revenues (loss) .................................         (2,987)          1,808
                                                                            ------------    ------------

Other expenses:
     Interest ...........................................................        (16,306)         (8,364)
     Dividends on preferred securities of subsidiary trust ..............         (2,370)         (2,370)
     Other, net .........................................................         (2,318)         (1,157)
                                                                            ------------    ------------
          Total other expenses, net .....................................        (20,994)        (11,891)
                                                                            ------------    ------------

          Loss before income tax benefit and cumulative effect of
              change in accounting principle ............................        (23,981)        (10,083)

Federal and state income tax benefit ....................................        (11,131)         (3,983)
                                                                            ------------    ------------

Loss before cumulative effect of change in accounting principle .........        (12,850)         (6,100)

Cumulative effect of change in accounting principle, net of tax .........            602            --
                                                                            ------------    ------------

Net loss attributable to common stock ...................................   $    (12,248)   $     (6,100)
                                                                            ============    ============

Net loss per share:
     Basic:
          Before cumulative effect of change in accounting principle ....   $       (.26)   $       (.19)
          Cumulative effect of change in accounting principle, net of tax            .01            --
                                                                            ------------    ------------
                                                                            $       (.25)   $       (.19)
                                                                            ============    ============
     Diluted:
          Before cumulative effect of change in accounting principle ....   $       (.26)   $       (.19)
          Cumulative effect of change in accounting principle, net of tax            .01            --
                                                                            ------------    ------------
                                                                            $       (.25)   $       (.19)
                                                                            ============    ============
Weighted average shares outstanding:
     Basic ..............................................................     48,573,037      32,468,287
                                                                            ============    ============
     Diluted ............................................................     48,573,037      32,468,287
                                                                            ============    ============



                             See accompanying notes.
</TABLE>


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>



                                                                         Twelve Months Ended September 30,
                                                                                2000           1999
                                                                            ------------    ------------
                                                                       (thousands of dollars, except shares
                                                                               and per share amounts)
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Operating revenues ......................................................   $    891,387    $    612,562
Cost of gas and other energy ............................................        542,955         346,904
                                                                            ------------    ------------
     Operating margin ...................................................        348,432         265,658
Revenue-related taxes ...................................................         36,010          32,561
                                                                            ------------    ------------
     Net operating margin ...............................................        312,422         233,097

Operating expenses:
     Operating, maintenance and general .................................        148,342         108,910
     Depreciation and amortization ......................................         60,257          42,286
     Taxes, other than on income and revenues ...........................         18,504          14,620
                                                                            ------------    ------------
          Total operating expenses ......................................        227,103         165,816
                                                                            ------------    ------------
          Net operating revenues ........................................         85,319          67,281
                                                                            ------------    ------------

Other expenses:
     Interest ...........................................................        (59,434)        (35,622)
     Dividends on preferred securities of subsidiary trust ..............         (9,480)         (9,480)
     Other, net .........................................................         (8,633)         (3,695)
                                                                            ------------    ------------
          Total other expenses, net .....................................        (77,547)        (48,797)
                                                                            ------------    ------------

          Earnings before income taxes and cumulative effect of change
              in accounting principle ...................................          7,772          18,484

Federal and state income taxes ..........................................          3,470           7,091
                                                                            ------------    ------------

Earnings before cumulative effect of change in accounting principle .....          4,302          11,393

Cumulative effect of change in accounting principle, net of tax .........            602            --
                                                                            ------------    ------------

Net earnings available for common stock .................................   $      4,904    $     11,393
                                                                            ============    ============

Net earnings per share:
     Basic:
          Before cumulative effect of change in accounting principle ....   $        .09    $        .35
          Cumulative effect of change in accounting principle, net of tax            .01            --
                                                                            ------------    ------------
                                                                            $        .10    $        .35
                                                                            ============    ============
     Diluted:
          Before cumulative effect of change in accounting principle ....   $        .09    $        .33
          Cumulative effect of change in accounting principle, net of tax            .01            --
                                                                            ------------    ------------
                                                                            $        .10    $        .33
                                                                            ============    ============

Weighted average shares outstanding:
     Basic ..............................................................     47,442,298      32,651,091
                                                                            ============    ============
     Diluted ............................................................     49,575,632      34,261,436
                                                                            ============    ============


                             See accompanying notes.
</TABLE>


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET

                                     ASSETS

<TABLE>
<CAPTION>


                                                                         September 30,            June 30,
                                                                   --------------------------
                                                                       2000          1999           2000
                                                                   -----------    -----------    -----------
                                                                              (thousands of dollars)
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Property, plant and equipment:
     Plant in service ..........................................   $ 2,129,828    $ 1,112,703    $ 1,580,077
     Construction work in progress .............................        28,100         17,331         30,192
                                                                   -----------    -----------    -----------
                                                                     2,157,928      1,130,034      1,610,269
     Less accumulated depreciation and amortization ............      (732,097)      (376,440)      (509,947)
                                                                   -----------    -----------    -----------
                                                                     1,425,831        753,594      1,100,322
     Additional purchase cost assigned to utility plant, net ...       723,971        133,275        386,839
                                                                   -----------    -----------    -----------


     Net property, plant and equipment .........................     2,149,802        886,869      1,487,161
                                                                   -----------    -----------    -----------




Current assets:
     Cash and cash equivalents ................................         2,690            596         27,829
     Accounts receivable, billed and unbilled, net ............       109,524         40,809         74,959
     Inventories, principally at average cost .................       119,497         40,244         60,259
     Deferred gas purchase costs ..............................        23,849           --             --
     Investment securities ....................................       288,628           --          187,817
     Prepayments and other ....................................        33,480          3,023            877
                                                                  -----------    -----------    -----------


          Total current assets ................................       577,668         84,672        351,741
                                                                  -----------    -----------    -----------


Deferred charges ..............................................       229,724         97,425        145,006

Investment securities .........................................         7,608         13,413         10,489

Real estate ...................................................        11,018          9,352          9,461

Other .........................................................        32,348          5,899         17,602
                                                                  -----------    -----------    -----------




     Total ....................................................   $ 3,008,168   $  1,097,630   $ 2,021,460
                                                                  ===========    ===========   ===========




                             See accompanying notes.
</TABLE>


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEET (Continued)

                      STOCKHOLDERS' EQUITY AND LIABILITIES

<TABLE>
<CAPTION>


                                                                                         September 30,              June 30,
                                                                                   --------------------------
                                                                                       2000           1999           2000
                                                                                   -----------    -----------    ------------
                                                                                             (thousands of dollars)
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Common stockholders' equity:
     Common stock, $1 par value; authorized 200,000,000
          shares; issued 51,903,890 shares .....................................   $    51,904    $    31,290    $    50,521
     Premium on capital stock ..................................................       626,662        277,012        601,042
     Less treasury stock, at cost ..............................................       (15,554)          (794)       (15,554)
     Less common stock held in trust ...........................................       (16,506)        (6,249)       (15,330)
     Accumulated other comprehensive income ....................................       181,257           (436)       115,175
     Retained deficit ..........................................................       (12,248)        (6,100)           --
                                                                                   -----------    -----------    -----------
     Total common stockholders' equity .........................................       815,515        294,723        735,854

Company-obligated  mandatorily  redeemable  preferred securi- ties of subsidiary
     trust holding solely subordinated notes of
     Southern Union ............................................................       100,000        100,000        100,000

Long-term debt and capital lease obligation ....................................     1,325,105        390,413        733,774
                                                                                   -----------    -----------    -----------


     Total capitalization ......................................................     2,240,620        785,136      1,569,628

Current liabilities:
     Long-term debt and capital lease obligation due
          within one year ......................................................         8,004          2,089          2,193
     Notes payable .............................................................       135,453         84,103              3
     Accounts payable ..........................................................       104,451         19,697         77,488
     Federal, state and local taxes ............................................         7,493          8,147          7,359
     Accrued interest ..........................................................        19,654          5,660         15,922
     Accrued dividends on preferred securities of subsidiary
          trust ................................................................         2,370           --             --
     Customer deposits .........................................................        21,080         17,542         17,255
     Deferred gas purchase costs ...............................................          --           10,387         11,708
     Other .....................................................................        61,621         17,223         28,542
                                                                                   -----------    -----------    -----------

          Total current liabilities ............................................       360,126        164,848        160,470
                                                                                   -----------    -----------    -----------

Deferred credits and other .....................................................       141,870         79,023        106,823
Accumulated deferred income taxes ..............................................       265,552         68,623        184,539
Commitments and contingencies ..................................................          --             --              --
                                                                                   -----------    -----------    -----------

     Total .....................................................................   $ 3,008,168    $ 1,097,630    $ 2,021,460
                                                                                   ===========    ===========    ===========



                             See accompanying notes.

</TABLE>

<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>

                                                                                    Common   Accumulated
                                         Common        Premium       Treasury        Stock      Other        Retained
                                        Stock, $1     on Capital    Stock, at      Held  in   Comprehen-     Earnings/
                                        Par Value       Stock          Cost          Trust    sive Income    (Deficit)   Total
                                        ---------    ------------   -----------   ---------- -------------  ---------- ---------
                                                                    (thousands of dollars)
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Balance July 1, 1999 ................   $  31,240    $    276,610   $     (794)   $  (5,562) $        (436) $   --     $ 301,058


   Comprehensive income:
     Net earnings ...................        --           --           --           --           --         11,052       11,052
     Unrealized gain in investment
       securities, net of tax .......        --           --           --           --        115,175         --        115,175
     Minimum pension liability
       adjustment; net of tax .......        --           --           --           --            436         --            436
                                                                                                                      ---------
     Comprehensive income ...........                                                                                   126,663
                                                                                                                      ---------
   Common stock held in trust .......        --           --           --        (10,037)        --           --        (10,037)
   5% stock dividend ................       2,359        8,659         --           --           --        (11,052)         (34)
   Purchase of treasury stock .......        --           --        (14,425)        --           --           --        (14,425)
   Issuance of stock for acquisition       16,714      315,235         --           --           --           --        331,949
   Exercise of stock options ........         208          538         (335)         269         --           --            680
                                        ---------    ---------    ---------    ---------    ---------    ---------    ---------
Balance June 30, 2000 ...............      50,521      601,042      (15,554)     (15,330)     115,175         --        735,854

   Comprehensive income:
     Net loss .......................        --           --           --           --          --         (12,248)     (12,248)
     Unrealized gain in investment
          securities, net of tax ....        --           --           --           --         65,527         --         65,527
     Cumulative effect of change
       in accounting principle ......        --           --           --           --            826         --            826
     Unrealized loss on hedging
          activities ................        --           --           --           --           (271)        --           (271)
                                                                                                                      ---------
     Comprehensive income ...........                                                                                    53,834
                                                                                                                      ---------
   Issuance of stock for acquisition        1,369       25,483         --           --           --           --         26,852
   Common stock held in trust .......        --           --           --         (1,176)        --           --         (1,176)
   Exercise of stock options ........          14          137         --           --           --           --            151
                                        ---------    ---------    ---------    ---------    ---------    ---------    ---------
Balance September 30, 2000 ..........   $  51,904    $ 626,662    $ (15,554)   $ (16,506)   $ 181,257    $ (12,248)   $ 815,515
                                        =========    =========    =========    =========    =========    =========    =========






                             See accompanying notes.
</TABLE>


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>


                                                                               Three Months Ended September 30,
                                                                                      2000         1999
                                                                                   ----------   ----------
                                                                                   (thousands of dollars)
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Cash flows used in operating activities:
   Net loss ....................................................................   $ (12,248)   $  (6,100)
   Adjustments to reconcile net loss to net cash flows used in
     operating activities:
       Depreciation and amortization ...........................................      15,966       10,848
       Deferred income taxes ...................................................        (256)      (1,615)
       Provision for bad debts .................................................         716          520
       Deferred interest expense ...............................................        (278)          33
       Cumulative effect of change in accounting principle .....................        (602)        --
       Other ...................................................................         509          355
       Changes in assets and liabilities, net of acquisitions and dispositions:
         Accounts receivable, billed and unbilled ..............................      (5,398)       9,364
         Accounts payable ......................................................     (13,212)     (11,482)
         Taxes and other liabilities ...........................................      (1,056)     (11,669)
         Customer deposits .....................................................        (357)        (140)
         Deferred gas purchase costs ...........................................     (26,554)     (12,568)
         Inventories ...........................................................     (44,542)     (10,871)
         Other .................................................................      (7,303)       2,656
                                                                                   ---------    ---------
       Net cash flows used in operating activities .............................     (94,615)     (30,669)
                                                                                   ---------    ---------
Cash flows from (used in) investing activities:
   Additions to property, plant and equipment ..................................     (21,908)     (20,418)
   Acquisition of operations, net of cash received .............................    (406,830)        --
   Increase in customer advances ...............................................         529          835
   Decrease in deferred charges and credits ....................................        (408)      (4,523)
   Purchase of investment securities ...........................................        --         (1,413)
   Other .......................................................................        (222)         458
                                                                                   ---------    ---------
       Net cash flows used in investing activities .............................    (428,839)     (25,061)
                                                                                   ---------    ---------
Cash flows from (used in) financing activities:
   Issuance of long-term debt ..................................................     480,000         --
   Issuance cost of debt .......................................................      (2,538)        --
   Repayment of debt and capital lease obligation ..............................        (535)        (495)
   Payment of merger debt assumed ..............................................    (114,171)        --
   Net borrowings under revolving credit facility ..............................     135,450       63,100
   Change in cash overdraft ....................................................        --         (6,655)
   Other .......................................................................         109          376
                                                                                   ---------    ---------
       Net cash flows from financing activities ................................     498,315       56,326
                                                                                   ---------    ---------
Increase (decrease) in cash and cash equivalents ...............................     (25,139)         596
Cash and cash equivalents at beginning of period ...............................      27,829         --
                                                                                   ---------    ---------
Cash and cash equivalents at end of period .....................................   $   2,690    $     596
                                                                                   =========    =========

Supplemental  disclosures of cash flow information:
  Cash paid during the period for:
     Interest ..................................................................   $  17,795    $  17,526
                                                                                   =========    =========
     Income taxes ..............................................................   $    --      $   1,300
                                                                                   =========    =========




                             See accompanying notes.

</TABLE>

<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>


                                                                              Twelve Months Ended September 30,
                                                                                     2000         1999
                                                                                   ----------   ---------
                                                                                   (thousands of dollars)
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Cash flows from operating activities:
   Net earnings ................................................................   $   4,904    $  11,393
   Adjustments to reconcile net earnings to net cash flows from
     operating activities:
       Depreciation and amortization ...........................................      60,257       42,286
       Deferred income taxes ...................................................       2,823        8,607
       Provision for bad debts .................................................       5,194        3,688
       Deferred interest expense ...............................................        (623)         847
       Cumulative effect of change in accounting principle .....................        (602)        --
       Other ...................................................................       1,862          987
       Changes in assets and liabilities, net of acquisitions and dispositions:
         Accounts receivable, billed and unbilled ..............................     (18,592)      (7,538)
         Accounts payable ......................................................      20,872           70
         Taxes and other liabilities ...........................................       4,977         (385)
         Customer deposits .....................................................      (3,624)        (108)
         Deferred gas purchase costs ...........................................     (29,100)      11,657
         Inventories ...........................................................     (33,580)      (1,694)
         Other .................................................................      (8,192)       2,536
                                                                                   ---------    ---------
     Net cash flows from operating activities ..................................       6,576       72,346
                                                                                   ---------    ---------
Cash flows from (used in) investing activities:
   Additions to property, plant and equipment ..................................    (101,936)     (79,330)
   Acquisition of operations, net of cash received .............................    (445,196)        --
   Purchase of investment securities ...........................................     (19,588)      (8,413)
   Increase in customer advances ...............................................       1,044        1,821
   Increase (decrease) in deferred charges and credits .........................         458       (6,343)
   Proceeds from sale of subsidiary ............................................      12,150         --
   Other .......................................................................      (5,233)        (497)
                                                                                   ---------    ---------
     Net cash flows used in investing activities ...............................    (558,301)     (92,762)
                                                                                   ---------    ---------
Cash flows from (used in) financing activities:
   Issuance of long-term debt ..................................................     780,000         --
   Issuance cost of debt .......................................................      (9,830)        --
   Repayment of debt and capital lease obligation ..............................    (138,831)     (20,849)
   Premium on early extinguishment of debt .....................................        (719)        --
   Net borrowings under revolving credit facility ..............................      51,350       42,000
   Payment of merger debt assumed ..............................................    (114,171)        --
   Purchase of treasury stock ..................................................     (14,425)        --
   Change in cash overdraft ....................................................        --           (337)
   Other .......................................................................         445          198
                                                                                   ---------    ---------
     Net cash flows from financing activities ..................................     553,819       21,012
                                                                                   ---------    ---------
Increase in cash and cash equivalents ..........................................       2,094          596
Cash and cash equivalents at beginning of period ...............................         596         --
                                                                                   ---------    ---------
Cash and cash equivalents at end of period .....................................   $   2,690    $     596
                                                                                   =========    =========

Supplemental  disclosures of cash flow information:  Cash paid during the period
   for:
     Interest ..................................................................   $  58,076    $  47,293
                                                                                   =========    =========
     Income taxes ..............................................................   $   4,321    $   2,394
                                                                                   =========    =========

                             See accompanying notes.

</TABLE>

<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



FINANCIAL STATEMENTS

These  interim  financial  statements  should  be read in  conjunction  with the
financial  statements and notes thereto  contained in Southern  Union  Company's
(Southern Union and, together with its wholly-owned  subsidiaries,  the Company)
Annual  Report on Form 10-K for the fiscal  year ended  June 30,  2000.  Certain
prior period amounts have been  reclassified  to conform with the current period
presentation.

The  interim  financial   statements  are  unaudited  but,  in  the  opinion  of
management,  reflect all adjustments (including both normal recurring as well as
any  non-recurring)  necessary  for  a  fair  presentation  of  the  results  of
operations  for such  periods.  Because of the seasonal  nature of the Company's
operations,  the results of operations and cash flows for any interim period are
not  necessarily  indicative of results for the full year. As further  described
below, the Company  acquired  Providence  Energy  Corporation and Fall River Gas
Company on September 28, 2000, Valley Resources,  Inc. on September 20, 2000 and
Pennsylvania Enterprises,  Inc. on November 4, 1999. Accordingly,  the operating
activities  of  the  acquired  operations  are  consolidated  with  the  Company
beginning on the respective  acquisition  dates. Thus, the results of operations
of the Company for the periods subsequent to the acquisitions are not comparable
to those  periods prior to the  acquisitions  nor are the fiscal 2001 results of
operations  comparable  with prior periods.  Also, the results of operations for
the three- and twelve-month  periods ended September 30, 2000 are not indicative
of results that would necessarily be achieved for a full year since the majority
of the Company's operating margin is earned during the winter heating season.

ACQUISITIONS

On September 28, 2000,  Southern Union  completed the  acquisition of Providence
Energy Corporation  (ProvEnergy) for approximately $270 million in cash plus the
assumption  of  approximately  $90 million in  long-term  debt.  The  ProvEnergy
natural gas distribution  operations are Providence Gas and North Attleboro Gas.
Providence Gas serves approximately  168,000 natural gas customers in Providence
and Newport,  Rhode Island, and 23 other cities and towns in Rhode Island. North
Attleboro  Gas serves  approximately  6,000  customers  in North  Attleboro  and
Plainville,  Massachusetts,  towns  adjacent to the  northeastern  Rhode  Island
border.  Subsidiaries  of the  Company  included  in the  ProvEnergy  merger are
ProvEnergy Oil  Enterprises,  Inc.  ("ProvEnergy  Oil"),  and  ProvEnergy  Power
Company,  LLC. ProvEnergy Oil operates a fuel oil distribution  business through
its subsidiary,  ProvEnergy Fuels,  Inc.  (ProvEnergy  Fuels).  ProvEnergy Fuels
serves over 14,000  residential  and  commercial  customers  in Rhode Island and
Massachusetts.  ProvEnergy  Power  Company  owns 50% of  Capital  Center  Energy
Company, LLC., a joint venture formed between ProvEnergy and ERI Services,  Inc.
to provide retail power.

On September 28, 2000,  Southern Union  completed the  acquisition of Fall River
Gas Company (Fall River Gas) for  approximately  1.4 million  shares of Southern
Union common stock and  approximately $27 million in cash plus assumption of $20
million in long-term debt. Fall River Gas serves  approximately 48,000 customers
in the city of Fall River and the towns of Somerset,  Swansea and Westport,  all
located in southeastern Massachusetts. Included in the Fall River Gas merger was
Fall River Gas Appliance Company, Inc., which rents water heaters and conversion
burners (primarily for residential use) in Fall River Gas' service area.

On September  20, 2000,  Southern  Union  completed  the  acquisition  of Valley
Resources,  Inc. (Valley  Resources) for approximately $125 million in cash plus
the assumption of $30 million in long-term debt.  Valley  Resources  natural gas
distribution  operations  are  Valley Gas  Company  and  Bristol  and Warren Gas
Company. Valley Resources,  which is headquartered in Cumberland,  Rhode Island,
provides  natural gas  utility  service to more than  64,000  customers.  Valley
Resources' three non-utility  subsidiaries  included in the merger rent and sell
appliances, offer service contract programs, sell liquid propane in Rhode Island
and nearby  Massachusetts,and  distribute  as a wholesaler  franchised  lines to
plumbing and heating  contractors.  Also, included in the acquisition was Valley
Resources' 90% interest in Alternate Energy Corporation,  which sells,  installs
and designs natural gas conversion systems and facilities, is an


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



authorized representative of the ONSI Corporation fuel cell, holds patents for a
natural gas/diesel co-firing system and for a device to control the flow of fuel
on dual-fuel equipment.

The Company funded the cash portion of the above described  acquisitions and any
related  refinancings of assumed debt with a bank note (the Term Note). See Debt
and Capital Lease.

The  assets of  ProvEnergy,  Fall  River  Gas and  Valley  Resources  (hereafter
referred to as the Company's "New England Operations") have been included in the
consolidated  balance sheet of the Company at September 30, 2000 and the results
of  operations  from  the New  England  Operations  have  been  included  in the
statement of consolidated  operations since their respective  acquisition dates.
The acquisitions  were accounted for using the purchase  method.  The additional
purchase cost assigned to utility plant of approximately  $339,840,000  reflects
the excess of the purchase price over the historical  book carrying value of the
utility plant.  Amortization of the additional purchase cost assigned to utility
plant  is  provided  on a  straight-line  basis  over  forty  years.  The  final
allocation of the purchase  price of the New England  Operations  acquisition is
expected to be completed in the fourth  quarter of fiscal year 2001. The Company
plans to sell or dispose of the non-core  businesses acquired in the New England
Operations.

Prior to the consummation of the acquisition of the New England Operations,  the
Company  purchased  shares of  Providence  Energy  Corporation,  Fall  River Gas
Company and Valley Resources, Inc. common stock for $2,882,000. As all necessary
approvals for the merger had not been obtained,  these purchases were treated as
investment securities.

On  November  4, 1999,  the  Company  acquired  Pennsylvania  Enterprises,  Inc.
(hereafter referred to as the "Pennsylvania Operations") in a transaction valued
at  approximately  $500  million,  including  assumption  of  long-term  debt of
approximately $115 million. The Company issued approximately 16.7 million shares
(before  adjustment for any subsequent  stock dividend) of common stock and paid
approximately  $36  million in cash to  complete  the  transaction.  The Company
funded the cash portion of the  acquisition of the  Pennsylvania  Operations and
related  refinancings  with the sale of  $300,000,000  of 8.25% Senior Notes due
2029  completed on November 3, 1999 (8.25% Senior  Notes).  See Debt and Capital
Lease.

The Pennsylvania Operations are headquartered in Wilkes-Barre, Pennsylvania with
natural gas distribution  being its primary  business.  The principal  operating
division of the Pennsylvania Operations is the PG Energy division of the Company
which  serves  more than  154,000  gas  customers  in  northeastern  and central
Pennsylvania.   Subsidiaries  of  the  Company   included  in  the  Pennsylvania
Operations merger included PG Energy Services Inc., (Energy Services),  Keystone
Pipeline  Services,  Inc.  (Keystone,  a  wholly-owned  subsidiary  of PG Energy
Services  Inc.),  PEI Power  Corporation,  and Theta Land  Corporation.  Through
Energy  Services  the  Company  markets a  diversified  range of  energy-related
products and services under the name of PG Energy PowerPlus and supplies propane
under the name of PG Energy Propane.  Keystone provides pipeline and fiber optic
cable construction,  installation, maintenance, and rehabilitation services. PEI
Power  Corporation  operates  a  cogeneration  plant  that  generates  steam and
electricity for resale.  Theta Land Corporation,  which provided land management
and  development  services  for more  than  44,000  acres of land,  was sold for
$12,150,000 in January 2000. No gain or loss was recognized on this transaction.
The Company plans to sell or dispose of both Keystone and the propane operations
of Energy Services,  which are not material to the Company.  The Company has not
yet sold these  operations  and there can be no  assurance  that a sale on terms
satisfactory to the Company will be completed.

The assets of the  Pennsylvania  Operations  are  included  in the  consolidated
balance sheet of the Company at September 30, 2000 and the results of operations
from  the  Pennsylvania  Operations  have  been  included  in the  statement  of
consolidated  operations  since November 4, 1999. The  acquisition was accounted
for using the purchase method. The additional  purchase cost assigned to utility
plant of  approximately  $261,000,000  reflects the excess of the purchase price
over the historical  book carrying value of the utility plant.  Amortization  of
the  additional  purchase  cost  assigned  to  utility  plant is  provided  on a
straight-line basis over forty years.


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Prior to the consummation of the acquisition of the Pennsylvania Operations, the
Company  purchased  358,500 shares of Pennsylvania  Enterprises,  Inc. stock for
$11,887,000  during both the first and second  quarters of the Company's  fiscal
year 2000.  As all  necessary  approvals  for the merger had not been  obtained,
these purchases were treated as investment securities.

Pro Forma Financial Information

The following  unaudited pro forma  financial  information  for the  three-month
periods  ended  September 30, 2000 and 1999 is presented as though the following
events had  occurred at the  beginning  of the earliest  period  presented:  (i)
acquisition of the New England Operations and the Pennsylvania Operations;  (ii)
the issuance of the Term Note and the sale of the 8.25% Senior Notes;  and (iii)
the  refinancing  of certain  short-term  and long-term  debt at the time of the
acquisitions.  The pro forma financial information is not necessarily indicative
of the results which would have actually  been obtained had the  acquisition  of
the New England Operations and Pennsylvania Operations, the issuance of the Term
Note,  the sale of senior  notes or the  refinancings  been  completed as of the
assumed date for the periods presented or which may be obtained in the future.

                                              Three Months Ended September 30,
                                                   2000         1999
                                                 ----------------------

Operating revenues ...........................   $ 185,659    $ 155,227
Income (loss) before extraordinary item ......     (33,309)     (28,283)
Net earnings (loss) available for common stock     (33,309)     (28,283)
Net earnings (loss) per common stock:
     Basic ...................................       (0.67)       (0.56)
     Diluted .................................       (0.67)       (0.56)

EARNINGS PER SHARE

Average  shares  outstanding  for basic  earnings per share were  48,573,037 and
32,468,287  for the  three-month  period  ended  September  30,  2000 and  1999,
respectively,  and 47,442,298 and 32,651,091 for the  twelve-month  period ended
September 30, 2000 and 1999,  respectively.  Diluted earnings per share includes
average  shares  outstanding  as well as common  stock  equivalents  from  stock
options and warrants.  Common stock  equivalents  were nil for both  three-month
periods  ended  September  30, 2000 and 1999,  respectively,  and  1,335,808 and
1,533,458  for the  twelve-month  periods  ended  September  30,  2000 and 1999,
respectively. At September 30, 2000, 967,982 shares of common stock were held by
various  rabbi  trusts for  certain of the  Company's  benefit  plans and 22,182
shares were held in a rabbi trust for certain  employees who deferred receipt of
Company shares for stock options exercised.

INVESTMENT SECURITIES

At  September  30,  2000,  the  Company  held  securities  of  Capstone  Turbine
Corporation  (Capstone).  This  investment is classified as "available for sale"
under the Statement of Financial  Accounting  Standards Board (FASB)  Accounting
for  Certain  Investments  in Debt and  Equity  Securities;  accordingly,  these
securities are stated at fair value,  with unrealized  gains and losses recorded
as a separate  component  of common  stockholders'  equity.  Realized  gains and
losses on sales of  investments,  as  determined  on a  specific  identification
basis, are included in the  Consolidated  Statement of Operations when realized.
As of September 30, 2000, the Company's  investment in Capstone had a fair value
of $288,628,000 and unrealized gain, net of tax, of $180,702,000. As of November
3,  2000,   the  fair  value  of  the  Company's   investment  in  Capstone  was
$189,119,000. The Company has classified this investment as current, as it plans
to monetize its  investment as soon as  practicable  following the completion of
the applicable  lock-up  periods to which it was subject and use the proceeds to
reduce outstanding debt.


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



All other  securities  owned by the  Company  are  accounted  for under the cost
method. The Company's other investments in securities consist of preferred stock
in non-public companies whose value is not readily determinable.  Realized gains
and  losses  on  sales  of  these  investments,  as  determined  on  a  specific
identification  basis, are included in the Consolidated  Statement of Operations
when incurred, and dividends are recognized as income when received.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Accounting Policies of Derivatives and Hedging Activities The Company recognizes
derivatives on the  consolidated  balance sheet at their fair value. On the date
of the  derivative  contract,  the Company  designates  the derivative as: (i) a
hedge of the fair value of a recognized asset or liability or of an unrecognized
firm commitment ("fair value" hedge);  (ii) a hedge of a forecasted  transaction
or of the  variability  of  cash  flows  to be  received  or paid  related  to a
recognized asset or liability  ("cash flow" hedge),  or (iii) "held for trading"
("trading"  instruments).  Changes  in  the  fair  value  of a  derivative  that
qualifies as a fair-value hedge, along with the gain or loss on the hedged asset
or liability that is attributable to the hedged risk (including  gains or losses
on firm commitments),  are recorded in earnings.  Changes in the fair value of a
derivative   that  qualifies  as  a  cash-flow   hedge  are  recorded  in  other
comprehensive  income,  until  earnings are affected by the  variability of cash
flows.  Lastly,  changes in the fair value of derivative trading instruments are
reported in current-period earnings.

Adoption  of  Accounting   Pronouncement  The  Company  adopted  Accounting  for
Derivative  Instruments  and Hedging  Activities  on July 1, 2000. In accordance
with that Statement, the Company recorded a net-of-tax cumulative-effect gain of
$602,000 in earnings to recognize the fair value of the  derivative  instruments
that are not  designated  as hedges.  The  Company  also  recorded  $826,000  in
accumulated  other  comprehensive  income which recognizes the fair value of all
derivative  instruments  that were designated as cash flow hedging  instruments.
The Company  expects to  reclassify  as earnings  during the next twelve  months
$306,000,  net-of-tax  from  the  transition  adjustment  that was  recorded  in
accumulated other comprehensive  income. During this period, the Company expects
to  reclassify  these  derivative  gains to earnings as the  settlement  of swap
payments occur. The maximum term over which the Company is hedging  exposures to
the variability of cash flows is 36 months.

Derivative  Activities  The Company  manages  earnings  risk  through the use of
derivative  instruments  to minimize the impact of volatility in interest  rates
and  commodity  fuel  prices.  The  Company  uses  interest  rate swaps to hedge
exposure to changes in interest rates and commodity  swaps and options to manage
price  risk  associated  with  energy  contracts.  The  Company is a party to an
interest  rate swap to reduce  exposure  to changes in the fair value of a fixed
lease  commitment.  During the quarter,  the Company  recorded a pre-tax gain of
$241,000  in  other  earnings  to  recognize  the  change  in fair  value of the
derivative  hedging  instrument and also recorded an offsetting  pre-tax loss of
$241,000 to recognize the change in the difference  (attributable  to the hedged
risk) between the carrying value and fair value of the related hedged liability.
The interest  rate swap  associated  with the fair value hedge was  subsequently
terminated in October 2000 resulting in a pre-tax gain of $182,000 which will be
amortized  into earnings  through  December  2004. The Company is also obligated
under two  interest  rate swaps  designed to hedge  exposure to  variability  in
interest  payments  on  variable  rate debt.  As such,  the  Company  recorded a
net-of-tax loss of $271,000 as an adjustment to accumulated other  comprehensive
income to  recognize  the  change in fair  value of all  derivative  instruments
designated as cash flow hedging instruments.

The Company is also committed  under two gas  derivative  contracts that are not
designated as hedging  instruments and therefore do not qualify to receive hedge
accounting  treatment  under the  Statement.  During the  quarter,  the  Company
recorded a pre-tax loss of $589,000 in other earnings to recognize the change in
fair  value of these two  derivative  instruments.  This loss was  off-set  by a
pre-tax gain of $683,000 arising from the monthly settlement of these derivative
contracts  which was recorded as a reduction  in cost of gas. At  September  30,
2000, the combined fair market value of the two derivatives not accounted for as
hedges was $448,000 and will expire in the quarter ending December 31, 2000.


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



In  conjunction  with the  acquisition  of Providence  Energy  Corporation,  the
Company also acquired  ProvEnergy  Oil, a distributor  of fuel oil to retail and
commercial customers.  ProvEnergy Oil offers certain retail customers price caps
for winter heating oil and purchases heating oil call options as a hedge against
price fluctuations on the related anticipated commodity purchases.

As of September 30, 2000,  the Company owned  options  representing  7.4 million
gallons of fuel oil at an average strike price of $0.84 a gallon.  These options
are  reflected  on the balance  sheet as assets at their fair value of $816,000.
The instruments are designated as cash flow hedges and in subsequent periods the
change in fair value of the  effective  portion of the hedging  options  will be
recorded to other comprehensive  income while changes in any ineffective portion
will be  recognized  immediately  in  earnings.  The maximum term over which the
Company is hedging  exposures to the  variability  of cash flows for  forecasted
purchases of home heating oil is eight months.

Trading  Contracts  The  Company  is  also a party  to  certain  energy  trading
contracts for the purchase and sale of energy commodities that are accounted for
in accordance  with Emerging  Issues Task Force Issue  Accounting  for Contracts
Involved in Energy Trading and Risk  Management  Activities  which requires that
energy trading contracts be recorded at fair value as of each balance sheet date
with gains and losses included in earnings.  For the quarter ended September 30,
2000, the Company  recorded an asset of $1,036,000  representing the fair market
value of the trading contracts and a corresponding pre-tax gain of $1,036,000 in
earnings.

PREFERRED SECURITIES OF SUBSIDIARY TRUST

On May 17, 1995,  Southern Union Financing I (Subsidiary  Trust), a consolidated
wholly-owned  subsidiary of Southern Union,  issued  $100,000,000 of 9.48% Trust
Originated Preferred Securities (Preferred  Securities).  In connection with the
Subsidiary Trust's issuance of the Preferred Securities and the related purchase
by Southern Union of all of the Subsidiary  Trust's  common  securities  (Common
Securities),   Southern  Union  issued  to  the  Subsidiary  Trust  $103,092,800
principal amount of its 9.48% Subordinated  Deferrable  Interest Notes, due 2025
(Subordinated Notes).

The sole assets of the Subsidiary Trust are the Subordinated Notes. The interest
and other payment dates on the Subordinated Notes correspond to the distribution
and other payment dates on the Preferred  Securities and the Common  Securities.
Under  certain  circumstances,  the  Subordinated  Notes may be  distributed  to
holders of the  Preferred  Securities  and holders of the Common  Securities  in
liquidation of the Subsidiary  Trust. The  Subordinated  Notes are redeemable at
the option of the Company on or after May 17, 2000, at a redemption price of $25
per Subordinated Note plus accrued and unpaid interest. The Preferred Securities
and the  Common  Securities  will be  redeemed  on a pro rata  basis to the same
extent as the Subordinated  Notes are repaid, at $25 per Preferred  Security and
Common Security plus  accumulated  and unpaid  distributions.  Southern  Union's
obligations under the Subordinated Notes and related agreements, taken together,
constitute a full and unconditional  guarantee by Southern Union of payments due
on the Preferred Securities. As of September 30, 2000 and 1999, 4,000,000 shares
of Preferred Securities were outstanding.



<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



DEBT AND CAPITAL LEASE

                                           September 30,    June 30,
                                               2000          2000
                                             ----------   -----------
                                               (thousands of dollars)

7.60% Senior Notes due 2024 ..............   $  364,515   $  364,515
8.25% Senior Notes due 2029 ..............      300,000      300,000
10.25% First Mortgage Bonds, due 2001 ....          910         --
8.375% First Mortgage Bonds, due 2002 ....       30,000       30,000
5.62% First Mortgage Bonds, due 2003 .....        6,400         --
6.82% First Mortgage Bonds, due 2018 .....      15,000         --
9.34% First Mortgage Bonds, due 2019 .....       15,000       15,000
9.63% First Mortgage Bonds, due 2020 .....       10,000         --
9.44% First Mortgage Bonds, due 2020 .....        6,500         --
8.09% First Mortgage Bonds, due 2022 .....       12,500         --
8.46% First Mortgage Bonds, due 2022 .....       12,500         --
7.50% First Mortgage Bonds, due 2025 .....       15,000         --
7.99% First Mortgage Bonds, due 2026 .....        7,000         --
7.24% First Mortgage Bonds, due 2027 .....        6,000         --
6.50% First Mortgage Bonds, due 2029 .....       14,606         --
7.70% Debentures, due 2027 ...............        6,905         --
Term Note ................................      480,000         --
Capital lease and other ..................       30,273       26,452
                                             ----------   ----------
Total debt and capital lease .............    1,333,109      735,967
    Less current portion .................        8,004        2,193
                                             ----------   ----------

Total long-term debt and capital lease ...   $1,325,105   $  733,774
                                             ==========   ==========


Senior Notes On November 3, 1999, the Company completed the sale of $300,000,000
of 8.25% Senior Notes (8.25% Notes) due 2029.  The net proceeds from the sale of
these  8.25%  Notes  were  used to:  (i) fund the  acquisition  of  Pennsylvania
Enterprises, Inc.; (ii) repay approximately $109,900,000 of borrowings under the
revolving credit facility,  and (iii) repay approximately  $136,000,000 of long-
and short-term debt assumed in the acquisition.

Assumed Debt In connection with the acquisition of the Pennsylvania  Operations,
the Company assumed $45,000,000 of First Mortgage Bonds bearing interest between
8.375% and 9.34%. In connection with the acquisition of ProvEnergy,  the Company
assumed  $86,916,000 of First Mortgage Bonds bearing  interest between 5.62% and
10.25%.  In  connection  with the  acquisition  of Fall River Gas,  the  Company
assumed  $19,500,000 of First Mortgage Bonds bearing  interest between 7.24% and
9.44%.  In connection  with the  acquisition  of Valley  Resources,  the Company
assumed $6,905,000 of 7.70% Debentures.

Capital  Lease The Company  completed  the  installation  of an Automated  Meter
Reading  (AMR) system at Missouri Gas Energy  during the first quarter of fiscal
year  1999.  The  installation  of the AMR  system  involved  an  investment  of
approximately  $30,000,000 which is accounted for as a capital lease obligation.
As  of  September  30,  2000,  the  capital  lease  obligation  outstanding  was
$24,639,000 with a fixed rate of 5.79%. This system has  significantly  improved
meter reading accuracy and timeliness and provided  electronic  accessibility to
meters in residential  customers' basements,  thereby assisting in the reduction
of the number of estimated bills.

Credit  Facilities  On May 31,  2000,  the  Company  restated  and  amended  its
short-term and long-term credit facilities  (together  referred to as "Revolving
Credit Facilities").  The Company has available $90,000,000 under the short-term
facility,  which  expires May 30, 2001,  and  $135,000,000  under the  long-term
facility, which expires on May 31, 2003. The Company has additional availability
under uncommitted line of credit facilities (Uncommitted Facilities) with


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



various banks.  Borrowings under the Revolving  Credit  Facilities are available
for Southern  Union's working capital,  letter of credit  requirements and other
general corporate purposes.  A balance of $135,453,000 was outstanding under the
Revolving Credit Facilities at September 30, 2000.

Term Note On August 28, 2000 the Company  entered into the Term Note to fund (i)
the  cash  portion  of the  consideration  to be paid  to the  Fall  River  Gas'
stockholders;  (ii) the all cash  consideration to be paid to the ProvEnergy and
Valley Resources stockholders,  (iii) repayment of approximately  $50,000,000 of
long-  and  short-term  debt  assumed  in the  mergers,  and  (iv)  all  related
acquisition  costs.  As of September  30, 2000,  a balance of  $480,000,000  was
outstanding under this Term Note. Subsequently, $55,000,000 was drawn under this
Term Note to refinance the remaining  short-term debt of the acquired companies.
Thus, as of October 31, 2000, a balance of $535,000,000  was  outstanding  under
this Term Note. The Term Note expires August 27, 2001 but may be extended at the
Company's  option  through  August  26,  2002 for a 12.5  basis  point  fee.  No
additional draws can be made on the Term Note.

UTILITY REGULATION AND RATES

Missouri On November 7, 2000,  Missouri Gas Energy filed a  $39,384,000  request
for a rate increase with the Missouri Public Service Commission (MPSC). Statutes
require  that the MPSC  reach a  decision  in the case  within  an  eleven-month
period.

On August 21, 1998, Missouri Gas Energy was notified by the MPSC of its decision
to grant a  $13,300,000  annual  increase to revenue  effective  on September 2,
1998, which is primarily earned volumetrically.  The MPSC rate order reflected a
10.93% return on common  equity.  The rate order,  however,  disallowed  certain
previously recorded deferred costs requiring a non-cash write-off of $2,221,000.
The Company  recorded  this charge to earnings in its fiscal year ended June 30,
1998.  On  December  8, 1998,  the MPSC denied  rehearing  requests  made by all
parties  other than  Missouri  Gas Energy and granted a portion of Missouri  Gas
Energy's rehearing request. On October 10, 2000, the MPSC issued its decision on
rehearing  Missouri Gas Energy's  request which served to reduce the $13,300,000
annual  revenue  increase by $70,000.  The MPSC's orders are subject to judicial
review and although  certain parties have argued for a reduction in Missouri Gas
Energy's  authorized  base  revenue  increase on judicial  review,  Missouri Gas
Energy expects such arguments to be unsuccessful.

Rhode  Island  Effective  October 1, 2000,  the Rhode  Island  Public  Utilities
Commission  (RIPUC) approved a settlement  agreement between Providence Gas, the
Rhode Island  Division of Public  Utilities and Carriers,  the Energy Council of
Rhode Island, and The George Wiley Center. The settlement  agreement  recognizes
the need for an  increase  in  distribution  system  revenues  of $4.5  million,
recovered through an adjustment to the throughput portion of the gas charge, and
provides for a 21-month base rate freeze. In the settlement agreement, the RIPUC
authorized system improvement programs.  Additionally,  higher levels of support
for  low  income  bill  payment   assistance  was  authorized  as  well  as  the
continuation  of  the  utility's  demand  side  management  and   weatherization
assistance  programs.  The agreement  incorporates  a decrease and freeze in the
fixed  component  of gas  costs of $9.0  million  annually,  and  establishes  a
Commodity Cost Adjustment Factor mechanism to adjust the commodity  component of
the Gas  Charge  Clause  rate  based on  projected  costs at  prevailing  market
conditions.

The  settlement  agreement  also  contains  a weather  mitigation  clause  and a
non-firm  margin  incentive  mechanism  (non-firm  margin is margin  earned from
interruptible  customers with the ability to switch to alternative  fuels).  The
weather  mitigation  clause is  designed  to  mitigate  the  impact  of  weather
volatility on customer billings, which will assist customers in paying bills and
stabilize the revenue  stream to Providence  Gas.  Providence Gas will defer the
margin impact of weather that is greater than 2 percent  colder-than-normal  and
will  recover  the  margin  impact of  weather  that is  greater  than 2 percent
warmer-than-normal  by  making  the  corresponding  adjustment  to the  deferred
revenue account (DRA).  The non-firm margin  incentive  mechanism is designed to
encourage Providence Gas to


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



promote  the  development  of  non-firm  margins,  which will reduce the cost of
service to all customers.  Providence Gas will retain 25 percent of all non-firm
margins earned in excess of $1.2 million.

Under the settlement  agreement,  Providence Gas may earn up to 10.7 percent but
not less than 7.0  percent  using the  average  return on equity  for the two 12
month periods of October 2000 through  September 2001 and July 2001 through June
2002.

Pennsylvania  On  April  3,  2000,  PG  Energy  filed  an  application  with the
Pennsylvania  Public Utility  Commission  (PPUC) seeking an increase in its base
rates  designed to produce  $17,900,000  in additional  annual  revenues,  to be
effective  June 2, 2000. On May 11, 2000,  the PPUC suspended this rate increase
request for seven months,  until January 2, 2001,  in order to  investigate  the
reasonableness  of the proposed  rates.  On October 10, 2000,  PG Energy and the
principal  parties to the base rate proceeding filed a Settlement  Agreement and
Joint Petition for Settlement of Rate  Investigation  (the Settlement  Petition)
with the PPUC and the  Administrative  Law Judge  (ALJ)  assigned to conduct the
investigation of the rate increase request. The Settlement Petition provides for
a rate increase  that is designed to produce  $10,800,000  of additional  annual
revenues.  The Settlement  Petition requests PPUC approval for the rate increase
to become  effective on January 1, 2001.  The ALJ issued a Recommended  Decision
dated as of October  18,  2000  recommending  PPUC  approval  of the  Settlement
Petition without modification.  It is not presently possible to determine if the
PPUC will accept the ALJ's  Recommended  Decision and what action either the ALJ
or the PPUC will ultimately  take with respect to this rate increase  request or
the Settlement Petition.

El Paso,  Texas On October 18, 1999,  Southern Union Gas filed a $1,696,000 rate
increase  request  for the El Paso  service  area  with the City of El Paso.  In
February 2000, the City of El Paso approved a $650,000 revenue increase,  and an
improved  rate design that collects a greater  portion of the Company's  revenue
stream  from the  monthly  customer  charge.  Additionally,  the City of El Paso
approved a new 30-year franchise for Southern Union Gas.

COMMITMENTS AND CONTINGENCIES

Environmental  The  Company  is  subject  to  federal,  state and local laws and
regulations  relating to the protection of the environment.  These evolving laws
and regulations may require  expenditures  over a long period of time to control
environmental  impacts. The Company has established  procedures for the on-going
evaluation of its operations to identify potential  environmental  exposures and
assure compliance with regulatory policies and procedures.

The Company is  investigating  the  possibility  that the Company or predecessor
companies may have been  associated with  Manufactured  Gas Plant (MGP) sites in
its former  service  territories,  principally  in Arizona and New  Mexico,  and
present service  territories in Texas,  Missouri and its newly acquired  service
territories  in  Pennsylvania,  Massachusetts  and Rhode Island.  At the present
time,  the  Company  is aware  of  certain  MGP  sites  in  these  areas  and is
investigating those and certain other locations.  While the Company's evaluation
of these Texas, Missouri, Arizona, New Mexico,  Pennsylvania,  Massachusetts and
Rhode  Island MGP sites is in its  preliminary  stages,  it is likely  that some
compliance   costs  may  be   identified   and  become   subject  to  reasonable
quantification.  Within the Company's service  territories certain MGP sites are
currently  the subject of  governmental  actions.  Certain of these sites are as
follows:

Kansas City,  Missouri  MGP Sites In a letter  dated May 10, 1999,  the Missouri
Department  of  Natural   Resources   (MDNR)  sent  notice  of  a  planned  Site
Inspection/Removal  Site Evaluation of the Kansas City Coal Gas Former MGP site.
This site  (comprised  of two adjacent MGP  operations  previously  owned by two
separate  companies  and  hereafter  referred  to as Station A and Station B) is
located at East 1st Street and Campbell in Kansas City, Missouri and is owned by
Missouri  Gas  Energy.  A  1988  investigation  of  the  site  performed  by  an
Environmental   Protection  Agency  (EPA)  contractor  determined  that  further
remedial  assessment  was not  required  under the  Comprehensive  Environmental
Response  Compensation  and  Liability Act of 1980  (CERCLA),  as amended by the
SUPERFUND


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Amendments  and  Reauthorization  Act of  1986.  The MDNR  has  stated  that the
reassessment  of the Kansas City Coal Gas site is part of a statewide  effort to
identify,  evaluate,  and  prioritize  the  potential  hazards  posed  by all of
Missouri's MGP sites.  During July 1999, the Company sent  applications  to MDNR
submitting the two sites to the agency's  Voluntary  Cleanup Program (VCP).  The
sites  were  accepted  into the VCP on  August  2,  1999  and MDNR  subsequently
approved the Company's  proposed work plans for the environmental  assessment of
the  sites.  The final  environment  reports  were sent to the state on March 6,
2000.  In a  letter  dated  June 21,  2000,  MDNR  responded  to the  Station  A
environmental  report submitted by the Company. In that letter, MDNR stated that
soil  remediation  will be  necessary  at the site  (Station A) but that further
exploration and  delineation of site  contamination  should be performed  before
remedial methods can be determined.  In response to MDNR's request,  the Company
submitted  a work plan for  further  investigation  of the site to the agency on
September 18, 2000. MDNR has not responded to the Station B environmental report
submitted by the Company.

Independence, Missouri MGP Site The Company received a letter dated December 16,
1999  from MDNR  notifying  the  Company  of a  Pre-Comprehensive  Environmental
Response  Compensation and Liability Information System (CERCLIS) Site Screening
investigation  of a former MGP located at Pacific Avenue & South River Boulevard
in Independence,  Missouri.  The Company  contacted the MDNR to inform the state
that,  as this  property is not owned by the Company,  it cannot grant access to
the property for MDNR's investigation. MDNR proceeded to investigate the site in
cooperation  with the site's current owner. In a letter dated May 17, 2000, MDNR
reported  that the site is not  recommended  for  CERCLIS  entry and no  further
CERCLA action is  recommended.  However,  due to the presence of  characteristic
waste, the site is eligible for the state's  Registry of Confirmed  Abandoned or
Uncontrollable Hazardous Waste Disposal Sites in Missouri.

Providence,   Rhode  Island  Sites   During  1995,   Providence   Gas  began  an
environmental evaluation at its primary gas distribution facility located at 642
Allens  Avenue  in  Providence,   Rhode  Island.  Environmental  studies  and  a
subsequent  remediation  work plan were completed at an approximate cost of $4.5
million.  Providence Gas also began a soil  remediation  project on a portion of
the site in July 1999 that is expected to be completed in February  2001.  As of
September  30,  2000,  approximately  $5.7  million  had been  expended  on soil
remediation.  The Company has compiled a  preliminary  range of costs,  based on
removal and off-site disposal of the most contaminated  soil,  ranging from $7.0
million to in excess of $9.0 million.  While an  environmental  solution for the
remainder  of  the  site  has  not  been  formulated,  the  Company  anticipates
approximately  $5.5  million  in  other  costs,  including  pipe  removal,  soil
remediation  and a  groundwater  investigation.  Because  of  the  uncertainties
associated with the pending  investigation and remedial  solutions,  the Company
cannot offer any  conclusions  as to the total future cost of remediation of the
property at this time.

In November 1998,  Providence Gas received a letter of  responsibility  from the
Department of Environmental  Management (DEM) relating to possible contamination
on previously  owned  property at 170 Allens Avenue in  Providence.  The current
operator of the property has also  received a letter of  responsibility.  A work
plan has been  created  and  approved  by DEM.  An  investigation  has  begun to
determine  the extent of  contamination,  as well as the extent of the Company's
responsibility.  Providence Gas entered into a  cost-sharing  agreement with the
current operator of the property,  under which Providence Gas is responsible for
approximately  twenty  percent (20%) of the costs related to the  investigation.
Costs of  testing  at this site as of  September  30,  2000  were  approximately
$300,000.  Until the results of the  investigation are known, the Company cannot
offer any conclusions as to its responsibility.

Tiverton,  Rhode  Island Site Fall River Gas  Company is a defendant  in a civil
action  seeking  to  recover  anticipated   remediation  costs  associated  with
contamination found at property owned by the plaintiffs.  This claim is based on
alleged  dumping of material by Fall River Gas Company trucks at the site in the
1930s and 1940s.


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Valley  Resources  Sites  Valley  Resources  is a party  to an  action  in which
Blackstone Valley Electric Company  ("Blackstone") brought suit for contribution
to its expenses of cleanup of a site on Mendon Road in Attleboro, Massachusetts,
to which  coal  manufacturing  waste was  transported  from a former MGP site in
Pawtucket,  Rhode  Island  (the  "Blackstone  Litigation").   Blackstone  Valley
Electric  Company  v.  Stone  &  Webster,  Inc.,  Stone  &  Webster  Engineering
Corporation,  Stone &  Webster  Management  Consultants,  Inc.  and  Valley  Gas
Company,  C. A. No.  94-10178JLT,  United  States  District  Court,  District of
Massachusetts. Valley Resources takes the position in that litigation that it is
indemnified for any cleanup expenses by Blackstone  pursuant to a 1961 agreement
signed at the time of Valley Resources'  creation.  This suit was stayed in 1995
pending the issuance of rulemaking at the United States EPA. That  rulemaking is
still pending  (Commonwealth  of  Massachusetts  v.  Blackstone  Valley Electric
Company, 67 F.3d 981 (1995)).  While this suit has been stayed, Valley Resources
and  Blackstone  (merged with  Narragansett  Electric  Company in May 2000) have
received  letters of  responsibility  from the Rhode  Island DEM with respect to
releases   from  two  MGP  sites  in  Rhode  Island.   DEM  issued   letters  of
responsibility  to Valley  Resources and  Blackstone  in September  1995 for the
Tidewater  MGP in Pawtucket,  Rhode Island,  and in February 1997 for the Hamlet
Avenue  MGP in  Woonsocket,  Rhode  Island.  Valley  Resources  entered  into an
agreement  with  Blackstone  (now  Narragansett)  in which Valley  Resources and
Blackstone  agreed to share equally the expenses for the costs  associated  with
the Tidewater site subject to reallocation upon final determination of the legal
issues that exist  between the  companies  with  respect to  responsibility  for
expenses  for the  Tidewater  site and  otherwise.  No such  agreement  has been
reached with respect to the Hamlet site. A new plan,  effective  October 1, 2000
through June 30, 2000,  establishes  an  environmental  fund for the recovery of
evaluation,  remedial and clean-up  costs arising out of the Company's  MGPs and
sites associated with the operation and disposal activities from MGPs.

To the extent that potential  costs  associated with former MGPs are quantified,
the Company  expects to provide any  appropriate  accruals and seek recovery for
such remediation costs through all appropriate means, including in rates charged
to customers, insurance and regulatory relief. At the time of the closing of the
acquisition of the Company's Missouri service  territories,  the Company entered
into an Environmental  Liability  Agreement that provides that Western Resources
retains financial  responsibility  for certain  liabilities under  environmental
laws that may exist or arise with respect to Missouri  Gas Energy.  In addition,
at the time it was acquired,  Providence Gas had in place a regulatory plan that
created a mechanism for the recovery of  environmental-related  costs. This plan
provided for  recovery of  environmental  investigation  and  remediation  costs
incurred  through  September  30,  1997,  as well as costs  incurred  during the
three-year  term of the plan,  are to be amortized over a 10-year  period,  at a
level authorized under the plan.

Although  significant  charges to earnings  could be required  prior to rate and
insurance recovery,  management does not believe that environmental expenditures
for MGP sites will have a material  adverse  effect on the  Company's  financial
position, results of operations or cash flows.

The Company follows the provisions of an American  Institute of Certified Public
Accountants Statement of Position,  Environmental  Remediation Liabilities,  for
recognition,  measurement,  display and disclosure of environmental  remediation
liabilities.

Southwest  Gas  Litigation  On  February  1, 1999,  Southern  Union  submitted a
proposal to the Board of Directors of Southwest Gas  Corporation  (Southwest) to
acquire  all of  Southwest's  outstanding  common  stock for  $32.00  per share.
Southwest then had a pending merger agreement with ONEOK, Inc. (ONEOK) at $28.50
per share.  On February 22, 1999,  Southern  Union and  Southwest  both publicly
announced  Southern  Union's  proposal,  after the Southwest  Board of Directors
determined that Southern Union's proposal was a Superior Proposal (as defined in
the Southwest merger agreement with ONEOK).  At that time Southern Union entered
into a  Confidentiality  and Standstill  Agreement with Southwest at Southwest's
insistence.  On April 25, 1999, Southwest's Board of Directors rejected Southern
Union's $32.00 per share offer and accepted an amended offer of $30.00 per share
from ONEOK. On April 27, 1999,  Southern Union increased its offer to $33.50 per
share and agreed to pay interest which,  together with dividends,  would provide
Southwest  shareholders  with a 6% annual  rate of return on its  $33.50  offer,
commencing


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



February 15, 2000, until closing. Southern Union's revised proposal was rejected
by Southwest's Board of Directors.  On January 21, 2000, ONEOK announced that it
was withdrawing from the Southwest merger agreement.

There  are  several  lawsuits  pending  that  relate to  activities  surrounding
Southern Union's efforts to acquire Southwest. In addition,  there is before the
U. S. Court of Appeals for the Tenth  Circuit,  an appeal by Southern Union of a
preliminary  injunction  entered by the U. S.  District  Court for the  Northern
District of Oklahoma.  Southern  Union intends to  vigorously  pursue its claims
against  Southwest,  ONEOK, and certain  individual  defendants,  and vigorously
defend itself  against the claims by Southwest and ONEOK.  The Company  believes
that the results of the  above-noted  Southwest Gas  litigation  will not have a
materially  adverse  effect on the  Company's  financial  condition,  results of
operations or cash flows.

Regulatory In August 1998, a jury in Edinburg,  Texas concluded deliberations on
the City of  Edinburg's  franchise  fee lawsuit  against PG&E Gas  Transmission,
Texas Corporation  (formerly Valero Energy Corporation (Valero)) and a number of
its  subsidiaries,  as well as former  Valero  subsidiary  Rio Grande Valley Gas
Company (RGV) and RGV's  successor  company,  Southern Union Company.  The case,
based  upon  events  that  occurred  between  1985-1987,   centers  on  specific
contractual language in the 1985 franchise agreement between RGV and the City of
Edinburg.  Southern  Union  purchased RGV from Valero in October 1993.  The jury
awarded the plaintiff  damages,  against all  defendants  under several  largely
overlapping but mutually exclusive claims,  totaling approximately  $13,000,000.
The trial judge subsequently reduced the award to approximately $700,000 against
Southern Union and $7,800,000  against Valero and Southern Union  together.  The
Company is pursuing reversal on appeal.  The Company believes it will ultimately
prevail,  and that the outcome of this  matter will not have a material  adverse
impact on the Company's results of operations, financial position or cash flows.
Furthermore,  the Company has not  determined  what  impact,  if any,  this jury
decision may have on other city franchises in Texas.

Other Southern Union and its subsidiaries are parties to other legal proceedings
that  management  considers to be normal  actions to which an  enterprise of its
size and  nature  might be  subject,  and not to be  material  to the  Company's
overall business or financial condition, results of operations or cash flows.

Commitments  Due to the  operation  of  purchase  gas  adjustment  clauses,  gas
purchase  costs  generally  do not  directly  affect  earnings of our  regulated
utility operations.  However, the Company's unregulated gas marketing operations
are subject to price risk related to fixed-price  sales commitments that are not
matched with corresponding  fixed-price  purchase  agreements.  At September 30,
2000, the Company had fixed-price  sales commitments with various customers that
provide for the delivery of  approximately  1,000,000  Dekatherms of natural gas
through April 2001 at an average sales price per Dekatherm of $3.12. The Company
has  exposure  to the  changes in  natural  gas  prices  related to  fluctuating
commodity prices,  which can impact the Company's  financial position or results
of operations, either favorably or unfavorably. The impact of changing prices on
the  Company's  financial  position  at a  point  in  time  is  not  necessarily
indicative of the impact of price movements throughout the year.



<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Overview The  Company's  core business is the  distribution  of natural gas as a
public utility through:  Southern Union Gas, Missouri Gas Energy (MGE); Atlantic
Utilities,  doing  business as South  Florida  Natural  Gas  (SFNG);  PG Energy,
acquired  on  November  4,  1999;   and,   effective  with  the  September  2000
acquisitions of Providence Energy Corporation,  Valley Resources,  Inc. and Fall
River  Gas  Company,   collectively  its  New  England  division.  In  addition,
subsidiaries  of  Southern  Union  support  and expand  natural gas sales and to
capitalize on the Company's gas energy  expertise.  These  subsidiaries  operate
natural gas  pipeline  systems,  generate  electricity,  market  natural gas and
electricity  to  end-users  and  distribute   propane  and  fuel  oil.   Certain
subsidiaries  also own or hold interests in real estate and other assets,  which
are primarily used in the Company's utility business.

Several of these business activities are subject to regulation by federal, state
or local authorities where the Company operates.  Thus, the Company's  financial
condition and results of operations  have been and will continue to be dependent
upon the receipt of adequate and timely  adjustments in rates. In addition,  the
Company's business is affected by seasonal weather impacts,  competitive factors
within the energy industry and economic  development  and residential  growth in
its service areas.

Acquisitions On September 28, 2000,  Southern Union completed the acquisition of
Providence Energy  Corporation  (ProvEnergy) for  approximately  $270 million in
cash plus the  assumption  of $90  million in  long-term  debt.  The  ProvEnergy
natural gas distribution  operations are Providence Gas and North Attleboro Gas.
Providence Gas serves approximately  168,000 natural gas customers in Providence
and Newport,  Rhode Island, and 23 other cities and towns in Rhode Island. North
Attleboro  Gas serves  approximately  6,000  customers  in North  Attleboro  and
Plainville,  Massachusetts,  towns  adjacent to the  northeastern  Rhode  Island
border.  Subsidiaries  of the  Company  included  in the  ProvEnergy  merger are
ProvEnergy Oil Enterprises, Inc. (ProvEnergy Oil), and ProvEnergy Power Company,
LLC.  ProvEnergy  Oil  operates a fuel oil  distribution  business  through  its
subsidiary,  ProvEnergy Fuels, Inc. (ProvEnergy Fuels).  ProvEnergy Fuels serves
over  14,000   residential   and  commercial   customers  in  Rhode  Island  and
Massachusetts.  ProvEnergy  Power  Company  owns 50% of  Capital  Center  Energy
Company, LLC., a joint venture formed between ProvEnergy and ERI Services,  Inc.
to provide retail power.

On September 28, 2000,  Southern  Union also  completed the  acquisition of Fall
River Gas Company  (Fall  River Gas) for  approximately  1.4  million  shares of
Southern  Union  common  stock  and  approximately  $27  million  in  cash  plus
assumption of $20 million in long-term debt. Fall River Gas serves approximately
48,000  customers in the city of Fall River and the towns of  Somerset,  Swansea
and Westport,  all located in southeastern  Massachusetts.  Included in the Fall
River Gas merger was Fall River Gas Appliance  Company,  Inc.  which rents water
heaters and conversion  burners  (primarily for  residential  use) in Fall River
Gas' service area.

On September  20, 2000,  Southern  Union  completed  the  acquisition  of Valley
Resources,  Inc. (Valley  Resources) for approximately $125 million in cash plus
the assumption of $30 million in long-term debt.  Valley  Resources  natural gas
distribution  operations  are  Valley Gas  Company  and  Bristol  and Warren Gas
Company. Valley Resources,  which is headquartered in Cumberland,  Rhode Island,
provides  natural gas  utility  service to more than  64,000  customers.  Valley
Resources' three non-utility  subsidiaries  included in the merger rent and sell
appliances, offer service contract programs, sell liquid propane in Rhode Island
and nearby  Massachusetts,  and distribute as a wholesaler  franchised  lines to
plumbing and heating  contractors.  Also included in the  acquisition was Valley
Resources' 90% interest in Alternate Energy Corporation,  which sells,  installs
and designs  natural gas  conversion  systems and  facilities,  is an authorized
representative  of the ONSI  Corporation  fuel cell, holds patents for a natural
gas/diesel  co-firing  system  and for a device to  control  the flow of fuel on
dual-fuel equipment.

The Company plans to sell or dispose of the non-core  businesses acquired in the
New England division.



<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



On  November  4, 1999,  the  Company  acquired  Pennsylvania  Enterprises,  Inc.
(hereafter referred to as the "Pennsylvania Operations") in a transaction valued
at  approximately  $500  million,  including  assumption  of  long-term  debt of
approximately $115 million. The Company issued approximately 16.7 million shares
(before  adjustment for any subsequent  stock dividend) of common stock and paid
approximately $36 million in cash to complete the transaction.  The Pennsylvania
Operations are  headquartered  in  Wilkes-Barre,  Pennsylvania  with natural gas
distribution being its primary business. The principal operating division of the
Pennsylvania  Operations  is the PG Energy  division of the Company which serves
more than  154,000 gas  customers  in  northeastern  and  central  Pennsylvania.
Subsidiaries of the Company included in the Pennsylvania  Operations  include PG
Energy  Services Inc.,  (Energy  Services),  Keystone  Pipeline  Services,  Inc.
(Keystone, a wholly-owned  subsidiary of PG Energy Services Inc.), and PEI Power
Corporation.  Through Energy Services the Company markets a diversified range of
energy-related  products and services under the name of PG Energy  PowerPlus and
supplies propane under the name of PG Energy Propane. Keystone provides pipeline
and   fiber   optic   cable   construction,   installation,   maintenance,   and
rehabilitation  services.  PEI Power Corporation  operates a cogeneration  plant
that generates steam and  electricity  for resale.  The Company plans to sell or
dispose of both Keystone and the propane  operations of Energy  Services;  these
operations  are not material to the Company.  The Company has not yet sold these
operations  and there can be no assurance that a sale on terms  satisfactory  to
the Company will be completed.

The operating  activities of the acquired  operations are consolidated  with the
Company beginning on their respective  acquisition  dates.  Thus, the results of
operations for the three- and twelve-month  periods ended September 30, 2000 are
not  indicative  of results that would  necessarily  be achieved for a full year
since the majority of the Company's operating margin is earned during the winter
heating season. For these reasons,  the results of operations of the Company for
the periods  subsequent to the  acquisitions are not comparable to those periods
prior  to the  acquisitions  nor are  the  fiscal  2001  results  of  operations
comparable  with prior  periods.  The  operating  activities  of the New England
division included in the Company's results of operation are not material for the
three- and twelve-month periods ended September 30, 2000.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2000 and 1999

The Company recorded a net loss  attributable to common stock of $12,248,000 for
the  three-month  period ended  September  30, 2000  compared with a net loss of
$6,100,000  for the  three-month  period ended  September 30, 1999. Net loss per
common share,  based on weighted average shares  outstanding  during the period,
was $.25 in 2000 compared with a net loss per common share of $.19 in 1999.  Due
to the  seasonal  nature of the gas utility  business,  the  three-month  period
ending September 30 is typically a loss period.

Operating  revenues were $144,468,000 for the three-month period ended September
30, 2000,  compared with operating revenues of $84,786,000 in 1999. Gas purchase
and other energy costs for the three-month  period ended September 30, 2000 were
$84,534,000, compared with $39,277,000 in 1999. The Company's operating revenues
are affected by the level of sales volumes and by the  pass-through of increases
or decreases in the  Company's  gas purchase  costs  through its  purchased  gas
adjustment  clauses.  Additionally,   revenues  are  affected  by  increases  or
decreases in gross  receipts taxes  (revenue-related  taxes) which are levied on
sales revenue as collected  from  customers  and remitted to the various  taxing
authorities.  The increase in both  operating  revenues  and gas purchase  costs
between  periods was  primarily  due to a 14%  increase  in gas sales  volume to
13,731  MMcf in 2000  from  12,027  MMcf in 1999  and by a 42%  increase  in the
average cost of gas from $3.21 per Mcf in 1999 to $4.56 per Mcf in 2000. Changes
in the average cost of gas resulted from seasonal impacts on demands for natural
gas and the ensuing  competitive  pricing within the industry.  The Pennsylvania
Operations  contributed   $37,294,000  to  the  overall  increase  in  operating
revenues,  $25,759,000  in gas purchase and other energy costs and 1,566 MMcf of
the increase in gas sales volume.


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Net operating margin  (operating  margin less  revenue-related  taxes) increased
$13,311,000  for the  three-month  period ended September 30, 2000 compared with
the same period in 1999. Net operating margin increased  principally as a result
of the acquisition of the Pennsylvania  Operations which contributed $11,359,000
to the net operating margin for the three-month period ended September 30, 2000.

Operating expenses,  which include operating,  maintenance and general expenses,
depreciation and amortization, and taxes other than on income and revenues, were
$57,843,000 for the three-month  period ended September 30, 2000, an increase of
$18,106,000,  compared with  $39,737,000 in 1999. An increase of $13,505,000 was
the result of the  acquisition of the  Pennsylvania  Operations.  Also impacting
operating expenses during the three-month period ended September 30, 2000 was an
increase in Company employee benefit costs and injuries and damages.

Interest expense was $16,306,000 for the three-month  period ended September 30,
2000,  compared to  $8,364,000  in 1999.  The increase is  primarily  due to the
issuance of  $300,000,000  of 8.25%  Senior  Notes on  November 3, 1999  ("8.25%
Senior  Notes") which were used to extinguish  $136,000,000  in existing debt of
the  Pennsylvania  Operations  at the time of the merger and the  assumption  of
$45,000,000 of Pennsylvania Operations' debt by the Company.

Other expense for the three-month period ended September 30, 2000 was $2,318,000
compared to $1,157,000 in 1999.  Other expense for the three-month  period ended
September 30, 2000  primarily  consists of $2,041,000 of legal costs  associated
with ongoing litigation associated with an unsuccessful acquisition. This amount
was offset by $451,000 in net rental income from Lavaca Realty Company  ("Lavaca
Realty").  Other  expense for the  three-month  period ended  September 30, 1999
primarily  consists  of  $1,200,000  of  legal  costs  associated  with  ongoing
litigation associated with an unsuccessful  acquisition which was also partially
offset by $222,000 in net rental income from Lavaca Realty.

For the  three-month  period ended  September  30,  2000,  the federal and state
income tax benefit  increased  $7,148,000 over the same period in 1999 primarily
due to the increase in net loss as previously described.

The Company adopted the Statement of Financial Accounting Standards Board (FASB)
Accounting for Derivative Instruments and Hedging Activities on July 1, 2000. In
accordance with the transition provisions of the Statement, the Company recorded
a  net-of-tax  cumulative-effect-type  gain of $602,000 in earnings to recognize
the fair  value of the  derivative  instruments  that do not  qualify  for hedge
accounting treatment under the Statement. The Company also recorded a net-of-tax
cumulative  effect-type  gain of $826,000  in  accumulated  other  comprehensive
income to recognize at fair value all derivative  instruments designated as cash
flow hedging instruments.

Twelve Months Ended September 30, 2000 and 1999

The Company  recorded net earnings  available for common stock of $4,904,000 for
the  twelve-month  period ended September 30, 2000 compared with net earnings of
$11,393,000 in 1999.  Earnings per diluted share were $.10 in 2000 compared with
earnings per diluted share of $.33 in 1999.

Operating revenues were $891,387,000 for the twelve-month period ended September
30, 2000, compared with operating revenues of $612,562,000 in 1999. Gas purchase
and other energy costs for the twelve-month period ended September 30, 2000 were
$542,955,000,  compared with  $346,904,000 in 1999. Both operating  revenues and
gas purchase costs were primarily impacted by a 15% increase in gas sales volume
from 105,938 MMcf in 1999 to 121,483 MMcf in 2000. The  acquisition of PG Energy
contributed  21,479 MMcf of the increase  while the remaining  operations of the
Company  resulted in a gas sales volume  decrease of 5,934 MMcf. The decrease in
sales volumes in both Missouri and Texas were due to warmer  weather  during the
twelve-month period ended September 30, 2000 compared with 1999.
Additionally, operating revenues and gas purchase costs were affected by an
increase of 17%


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



in the average  cost of gas from $3.25 per Mcf in 1999 to $3.82 per Mcf in 2000,
due to increases in average spot market gas prices.

Missouri Gas Energy service  territories  experienced weather which was 79% of a
30-year  measure for the  twelve-month  period ended September 30, 2000 compared
with 86% in 1999.  Weather for Southern  Union Gas service  territories  for the
twelve-month  period  ended  September  30,  2000 was 71% of a  30-year  measure
compared with 74% in 1999.  About half of the customers served by Southern Union
Gas are weather normalized.  Weather in PG Energy service territories was 95% of
a 30-year measure for the eleven-month period ended September 30, 2000.

Operating expenses were $227,103,000 for the twelve-month period ended September
30, 2000,  compared with operating expenses of $165,816,000 in 1999. An increase
of $51,259,000 was the result of the acquisition of the Pennsylvania Operations,
as  previously   discussed.   Also  impacting   operating  expenses  during  the
twelve-month period ended September 30, 2000 was an increase in bad debt expense
and  inventory  write-downs  associated  with a  propane  operation,  as well as
increases in Company employee benefit costs.

Interest expense was $59,434,000 for the twelve-month period ended September 30,
2000  compared to  $35,622,000  in 1999.  The  increase in interest  expense was
primarily due to the issuance of the 8.25% Senior Notes, as previously discussed
which was used to extinguish  $136,000,000 in existing debt of the  Pennsylvania
Operations  at the time of the  merger  and the  assumption  of  $45,000,000  of
Pennsylvania  Operations'  debt by the  Company.  This was  partially  offset by
reduced  interest  expense on short-term  debt due to a reduction in the average
short-term  debt  outstanding  during 2000 as a result of utilizing a portion of
the 8.25% Senior Notes proceeds for working capital needs.

Other  expense  for  the  twelve-month  period  ended  September  30,  2000  was
$8,633,000  compared to $3,695,000 in 1999.  Other expense for the  twelve-month
period ended September 30, 2000 included:  $12,404,000 of legal costs associated
with ongoing  litigation  associated with an unsuccessful  acquisition which was
partially  offset  by net  rental  income of Lavaca  Realty  of  $1,985,000  and
$623,000  in deferral of interest  and other  expenses  associated  with the MGE
Safety Program.  Other expense for the  twelve-month  period ended September 30,
1999  included:  $5,039,000 of legal costs  associated  with ongoing  litigation
associated with an unsuccessful  acquisition  which was partially  offset by net
rental  income of Lavaca  Realty of  $1,331,000  and  $457,000  in  deferral  of
interest and other expenses associated with the MGE Safety Program.

For the twelve-month  period ended September 30, 2000,  federal and state income
taxes  decreased  $3,621,000  over the same  period in 1999 due to a decrease in
pre-tax  earnings as discussed  above.  The Company's  consolidated  federal and
state  effective  income  tax rate was 45% and 38% for the  twelve-month  period
ended September 30, 2000 and 1999,  respectively.  The increase in the effective
federal and state income tax rate is a result of non-tax deductible amortization
of additional  purchase cost  associated  with the purchase of the  Pennsylvania
Operations.


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



The following table sets forth certain  information  regarding the Company's gas
utility  operations for the three- and twelve-month  periods ended September 30,
2000 and 1999:

<TABLE>
<CAPTION>
                                                              Three Months Ended        Twelve Months Ended
                                                                September 30,               September 30,
                                                             2000         1999          2000            1999
                                                          -----------  ------------   -----------    -----------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Average number of gas sales customers served:
     Residential ......................................     1,052,786       897,281     1,044,172        899,968
     Commercial .......................................       103,348        87,375       103,775         88,788
     Industrial and irrigation ........................           773           574           751            571
     Public authorities and other .....................         3,151         2,845         3,147          2,860
     Pipeline and marketing ...........................           370           235           263            236
                                                          -----------   -----------   -----------    -----------
          Total average customers served ..............     1,160,428       988,310     1,152,108        992,423
                                                          ===========   ===========   ===========    ===========
Gas sales in millions of cubic feet (MMcf)
     Residential ......................................         5,518         4,687        70,271         57,215
     Commercial .......................................         3,279         2,847        29,886         25,649
     Industrial and irrigation ........................           527           326         1,797          1,370
     Public authorities and other .....................           290           255         2,625          2,287
     Pipeline and marketing ...........................         3,388         3,143        17,083         18,486
                                                          -----------   -----------   -----------    -----------
          Gas sales billed ............................        13,002        11,258       121,662        105,007
     Net change in unbilled gas sales .................           729           769          (179)           931
                                                          -----------   -----------   -----------    -----------
          Total gas sales .............................        13,731        12,027       121,483        105,938
                                                          ===========   ===========   ===========    ===========
Gas sales revenues (thousands of dollars):
     Residential ......................................   $    61,576   $    44,290   $   494,133    $   369,084
     Commercial .......................................        24,780        16,836       183,246        142,417
     Industrial and irrigation ........................         3,264         1,591        10,493          6,475
     Public authorities and other .....................         1,846         1,159        12,904          8,752
     Pipeline and marketing ...........................        13,713         8,731        52,151         43,218
                                                          -----------   -----------   -----------    -----------
          Gas revenues billed .........................       105,179        72,607       752,927        569,946
     Net change in unbilled gas sales revenues ........         5,363         4,571         3,664          5,706
                                                          -----------   -----------   -----------    -----------
          Total gas sales revenues ....................   $   110,542   $    77,178   $   756,591    $   575,652
                                                          ===========   ===========   ===========    ===========

Gas sales margin (thousands of dollars) ...............   $    43,029   $    34,557   $   257,593    $   198,586
                                                          ===========   ===========   ===========    ===========

Gas sales revenue per thousand cubic feet (Mcf) billed:
     Residential ......................................   $     11.16   $      9.45   $      7.03    $      6.45
     Commercial .......................................          7.56          5.91          6.13           5.55
     Industrial and irrigation ........................          6.20          4.88          5.84           4.73
     Public authorities and other .....................          6.38          4.55          4.92           3.83
     Pipeline and marketing ...........................          4.05          2.78          3.05           2.34

Weather:
     Degree days:
          Southern Union Gas service territories ......             5             3         1,516          1,580
          Missouri Gas Energy service territories .....            66            92         4,150          4,522
          PG Energy service territories ...............           260          --           5,547           --
     30-year measure:
          Southern Union Gas service territories ......             5             5         2,147          2,134
          Missouri Gas Energy service territories .....            59            59         5,245          5,246
          PG Energy service territories ...............           120          --           5,870           --

Gas transported in millions of cubic feet (MMcf) ......        15,268        12,603        72,501         55,921
Gas transportation revenues (thousands of dollars) ....   $     7,308   $     4,372   $    36,294    $    20,752
</TABLE>

----------------------

The above  information  does not include the Company's 43% equity ownership in a
natural gas  distribution  company  serving 22,000  customers in Piedras Negras,
Mexico. The above information does not include the New England division acquired
in various  transactions  in September  2000. As of September 30, 2000,  the New
England division served approximately 286,000 gas sales customers.


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



FINANCIAL CONDITION

The Company's gas utility  operations  are seasonal in nature with a significant
percentage  of the annual  revenues  and earnings  occurring in the  traditional
heating-load months. This seasonality results in a high level of cash flow needs
immediately preceding the peak winter heating season months,  resulting from the
required  payments  to natural gas  suppliers  in advance of the receipt of cash
payments  from the  Company's  customers.  The  Company  has  historically  used
internally  generated funds and its credit facilities to provide funding for its
seasonal working capital,  continuing  construction and maintenance programs and
operational requirements.

On May 31, 2000,  the Company  restated and amended its short-term and long-term
credit facilities (together referred to as "Revolving Credit  Facilities").  The
Company has available  $90,000,000 under the short-term facility,  which expires
May 30, 2001, and $135,000,000  under the long-term  facility,  which expires on
May 31, 2003. The Company has additional  availability under uncommitted line of
credit facilities (Uncommitted  Facilities) with various banks. Borrowings under
the Revolving  Credit  Facilities  are available  for Southern  Union's  working
capital,  letter of credit requirements and other general corporate purposes.  A
balance of $135,453,000 was outstanding under the Revolving Credit Facilities at
September 30, 2000.

On August 28, 2000 the Company  entered  into the Term Note to fund (i) the cash
portion of the  consideration  to be paid to the Fall  River Gas'  stockholders;
(ii)  the  all  cash  consideration  to be  paid to the  ProvEnergy  and  Valley
Resources  stockholders,  (iii) repayment of approximately  $50,000,000 of long-
and  short-term  debt assumed in the mergers,  and (iv) all related  acquisition
costs. As of September 30, 2000, a balance of $480,000,000 was outstanding under
this Term  Note.  Subsequently,  $55,000,000  was  drawn  under the Term Note to
refinance the remaining  short-term debt of the acquired companies.  Thus, as of
October 31, 2000, a balance of  $535,000,000  was outstanding on this Term Note.
The Term Note  expires  August 27,  2001 but may be  extended  at the  Company's
option through  August 26, 2002 for a 12.5 basis point fee. No additional  draws
can be made on the Term Note.

Concurrent  with the closing of the  Pennsylvania  Enterprises,  Inc.  merger on
November 4, 1999, the Company issued $300,000,000 of 8.25% Senior Notes due 2029
which were used to: (i) fund the cash portion of the consideration to be paid to
the  Pennsylvania  Enterprises,  Inc.  shareholders;  (ii)  refinance  and repay
certain debt of  Pennsylvania  Enterprises,  Inc.,  and (iii) repay  outstanding
borrowings under the Company's various credit facilities. These senior notes are
senior unsecured obligations and will rank equally in right of payment with each
other and with the Company's  other  unsecured and  unsubordinated  obligations,
including the 7.60% Senior Notes due 2024.

The principal sources of funds during the three-month period ended September 30,
2000 were  $480,000,000  borrowed under the Term Note and $135,450,000  borrowed
under  the  Company's  Revolving  Credit  Facilities.  This  provided  funds  of
$406,830,000 for acquisition and related expenses of the New England Operations;
$535,000  for  the  retirement  of  long-term  debt;  $21,908,000  for  on-going
property,  plant and equipment  additions;  as well as seasonal  working capital
needs of the Company.

The effective  interest rate under the Company's current debt structure is 7.93%
(including  interest and the  amortization of debt issuance costs and redemption
premiums on refinanced debt).

The Company  retains  its  borrowing  availability  under its  Revolving  Credit
Facilities,  as discussed above.  Borrowings under these credit  facilities will
continue to be used,  as needed,  to provide  funding for the  seasonal  working
capital needs of the Company. Internally-generated funds from operations will be
used principally for the Company's ongoing construction and maintenance programs
and operational  needs and may also be used  periodically to reduce  outstanding
debt.



<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information  contained in Item 3 updates,  and should be read in conjunction
with, information set forth in Part II, Item 7 in the Company's Annual Report on
Form  10-K  for the year  ended  June  30,  2000,  in  addition  to the  interim
consolidated   financial   statements,   accompanying  notes,  and  Management's
Discussion  and  Analysis  of  Financial  Condition  and  Results of  Operations
presented in Items 1 and 2 of this Quarterly Report on Form 10-Q.

There were no material  changes in market  risks faced by the Company from those
reported in the Company's Annual Report on Form 10-K for the year ended June 30,
2000.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This Management's  Discussion and Analysis of Financial Condition and Results of
Operations  and other  sections  of this Form 10-Q may  contain  forward-looking
statements  that are based on current  expectations,  estimates and  projections
about the  industry  in which the  Company  operates,  management's  beliefs and
assumptions  made  by  management.   Words  such  as  "expects,"  "anticipates,"
"intends," "plans," "believes," "seeks,"  "estimates,"  variations of such words
and  similar   expressions   are  intended  to  identify  such   forward-looking
statements.  These  statements  are not  guarantees  of future  performance  and
involve certain risks,  uncertainties  and  assumptions,  which are difficult to
predict and many of which are outside the Company's control.  Therefore,  actual
outcomes and results may differ  materially from what is expressed or forecasted
in such  forward-looking  statements.  The Company  undertakes  no obligation to
update  publicly  any  forward-looking  statements,  whether  as a result of new
information,  future events or otherwise. Readers are cautioned not to put undue
reliance  on  such  forward-looking  statements.  Stockholders  may  review  the
Company's  reports  filed  in  the  future  with  the  Securities  and  Exchange
Commission for more current descriptions of developments that could cause actual
results to differ materially from such forward-looking statements.

Factors that could cause or contribute to actual  results  differing  materially
from such  forward-looking  statements  include the following:  cost of gas; gas
sales volumes;  weather  conditions in the Company's  service  territories;  the
achievement of operating  efficiencies and the purchases and  implementation  of
new technologies for attaining such efficiencies; impact of relations with labor
unions of  bargaining-unit  employees;  the receipt of timely and adequate  rate
relief; the outcome of pending and future litigation;  governmental  regulations
and proceedings affecting or involving the Company; and the nature and impact of
any  extraordinary  transactions  such as any  acquisition  or  divestiture of a
business unit or any assets.  These are representative of the factors that could
affect  the  outcome  of  the  forward-looking  statements.  In  addition,  such
statements  could be affected by general  industry  and market  conditions,  and
general economic  conditions,  including  interest rate  fluctuations,  federal,
state and local laws and  regulations  affecting  the retail gas industry or the
energy industry generally, and other factors.



<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES



RESULTS OF VOTES OF SECURITY HOLDERS



Southern Union held a Special  Meeting of  Stockholders  on August 29, 2000. The
following  matter was submitted for a vote by Southern  Union's security holders
to approve and adopt,  separately  and jointly:  the Agreement of Merger between
Southern  Union  Company and Fall River Gas,  whereby Fall River Gas would merge
with and into  Southern  Union;  and the  Agreement  and Plan of Merger  between
Southern  Union,  GUS Acquisition  Corp., a wholly-owned  subsidiary of Southern
Union and  Providence  Energy  Corp.,  whereby GUS would be merged with and into
ProvEnergy with ProvEnergy becoming the surviving corporation and a wholly-owned
subsidiary of Southern Union,  whereupon ProvEnergy would adopt and effect plans
of  merger  whereby  each  of  North  Attleboro  Gas  Company,  a  Massachusetts
corporation  and Providence  Gas Company,  a Rhode Island  corporation,  each of
which was a subsidiary of ProvEnergy,  would be merged with and into ProvEnergy,
and  Southern  Union  would  adopt and  effect an  agreement  and plan of merger
whereby ProvEnergy would be merged into Southern Union.

The number of votes cast in favor,  against or abstain for the proposal voted on
at the Special Meeting of Stockholders, were:

                                                    For       Against   Abstain

Proposal to approve Fall River Gas Company and
     Providence Energy Corporation mergers.....  41,666,787   139,912   176,475



<PAGE>






                     SOUTHERN UNION COMPANY AND SUBSIDIARIES



Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.




                                                  SOUTHERN UNION COMPANY
                                                  ------------------------
                                                       (Registrant)






Date   November 14, 2000                   By   RONALD J. ENDRES
       -----------------                        ------------------------------
                                                Ronald J. Endres
                                                Executive Vice President and
                                                Chief Financial Officer




Date  November 14, 2000                   By   DAVID J. KVAPIL
      -----------------                        -------------------------------
                                               David J. Kvapil
                                               Senior Vice President and
                                               Corporate Controller
                                               (Principal Accounting Officer)